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Parsing the BofA Privilege Waiver and its Impact on Wachtell, Shearman

Posted by Zach Lowe

The Bank of America-Merrill Lynch flap is endlessly interesting to us--and we suspect to many of you as well--in part because of the prospect of seeing the veil of secrecy pulled off one of the most controversial deals in recent years. The idea of seeing a few e-mails sent between BofA's in-house counsel and Wachtell, Lipton, Rosen & Katz partner Edward Herlihy (BofA's lead counsel in the deal) about merger disclosure issues piques our curiosity quite a bit. And that could happen--to some degree--now that BofA has waived attorney-client privilege in one case against the SEC and in regards to New York attorney general Andrew Cuomo's investigation of the merger.

But will plaintiffs lawyers who sued BofA over various alleged violations linked to the Merrill merger late last year get to use those previously privileged documents in their cases? The bank doesn't think so, and it's banking (apologies for the pun) on Federal Rule of Evidence number 502, passed just 13 months ago, to make sure the privileged information stays out of the hands of plaintiffs attorneys, according to this quick Wall Street Journal write-up and court records which you can download below. The rule is meant to protect litigants who waive attorney-client privilege in one proceeding from having that waiver spill over into every other connected proceeding, says Peter Henning, a professor at Wayne State University Law School who specializes in white-collar crime issues.

The bank invoked rule 502 in its proposed protective order governing its privilege waiver, an order Judge Jed Rakoff approved Wednesday. (Rakoff, who sits in federal district court in Manhattan, is hearing the SEC's case against BofA. The SEC has accused the bank of violating disclosure rules by failing to mention in public merger documents that Merrill had approved up to $5.8 billion in bonus payments. The bank and its lawyers at Cleary Gottlieb Steen & Hamilton have denied wrongdoing.) The bank says its waiver does not apply to any of 58 listed private cases against it or Merrill Lynch in relation to the merger. The main piece of litigation is a consolidated class action filed in federal court in Manhattan on behalf of several plaintiffs, including the state attorney general of Ohio.

Henning says the bank's proposed selective waiver is an unprecedented test of the new rule. "This is a brave new world," he says. Henning also suggested that if the bank waives the privilege in front of the House Committee on Oversight and Government Reform--a nonjudicial proceeding--it may risk losing control of the privileged information entirely.

Since the bank announced its plan to waive the privilege, we've also been hearing speculation that Wachtell, given its prominent role in the merger at issue, would have to be replaced as BofA's lead defense counsel in the private litigation. The bank's hiring this week of Paul, Weiss, Rifkind, Wharton & Garrison added fuel to that talk.

But the speculation may have been premature. An amended complaint in the consolidated class action was sent to Peter Hein at Wachtell and Stuart Baskin at Shearman & Sterling (counsel to Merrill Lynch) on Wednesday. Neither lawyer returned messages seeking comment on their futures in the private litigation. Paul Weiss partners also declined to comment, citing the sensitivity of the issue.